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Supply, You Silly Twit

Supply, You Silly Twit
April 3, 2023 Propertyology Head of Research and REIA Hall of Famer, Simon Pressley

Humans are capable of putting people on the moon, of creating cures for all kinds of diseases and of developing amazing electronic devices to streamline daily activities.

Yet the so-called collective ‘leaders’ of our nation, our states and many industry and community groups somehow lack the intelligence to understand that the only way to properly address rising prices is through supporting more supply.

The national circus that we know as a ‘rental crisis’ is now 8-years on from when the clowns first came to town. And people still don’t get it.

Once and for all, this report reveals indisputable evidence proving that increased rental supply is the only thing that will eventually bring an end to the biggest shortage of housing in this nation’s 230-year history. The only way to increase rental supply is to encourage everyday Aussies to invest. Absorb this proof.

The number of good people now sleeping in makeshift shelter such as cars, caravans, tents and couches must be approaching somewhere near 1 million. Shameful.

Instead of supporting those with the capacity to fund the supply of more rental accommodation, plonkers in high places (PIHPs) keep punishing suppliers.

Within the last couple of weeks, the PIHPs in ACT and Queensland introduced their latest layers of legislation that are guaranteed to further discourage goal-setting financial aspirants from using their hard-earned money to supply much-needed rental accommodation.

The bottom line is that any commentary or policy that foolishly focuses on symptoms such as the rising price of rent are wasted words that will cause more long-term harm to the constituents that the PIHPs claim to be ‘protecting’.


A self-inflicted mess

According to Census records, 1 in every 3 Australian households have depended on rental accommodation for 70-years.

96 percent of Australia’s total rental pool of 3.3 million properties are funded by everyday Aussie investors and (only) 4 percent are government-funded.

To appreciate how serious the under-supply has become, there was only 32,040 properties advertised for rent across Australia at the end of February 2023.

13-years earlier, when 4.5 million fewer people lived in this country, there were 43,559 properties advertised for rent.


Real estate lock-up: Propertyology report to federal and state PIHPs


The graphic below lists a series of regulatory restrictions on rental suppliers that began in 2014-15, when Australia’s two largest cities were in the middle of a property boom.

When reviewing this chart, make note that early 2017 was the beginning of a sharp and consistent reduction in rental supply.

As each new layer of regulatory restrictions on investors was applied, the volume of rental supply continued to sink lower and lower.

It’s the first piece of proof that today’s ballooning rent prices are caused by the events in this graphic.

Population growth not the ‘problem’

Some commentary implies the problem has been caused by fast growing population. That’s factually incorrect.

For example, over the last 3-years Sydney and Melbourne produced the smallest ever population change in their respective city’s history, but there is very little rental supply available.

Queensland produced the highest population growth in Australia last year, but it also had record low population growth during the previous year.

The green line in the below graphic confirms the total change in population over the 5-years post 2017, when rental supply started to fall, was by no means a booming rate.

Whilst population growth was not the cause of the dire shortage of rental supply, the fact that there is such a shortage means that a perfect storm is now ready to erupt, with the biggest population boom in our nation’s history unfolding over the next couple of years highly probable.

Just build more homes?

The blue columns in the graphic above proves that there is no evidence of a major imbalance between the historical volume of new dwelling construction and population growth.

Housing challenges are never as ‘simple’ as just building more homes.

Humans are not homogenous robots. Household incomes and preferences are not uniform.

Build what type of home? Build it where?

Most importantly, who will fund the homes?

It’s absolute nonsense to think that every tenant is sitting around with their deposit saved, stable employment history, a solid credit rating and waiting to pounce on a home as soon as one is built. Bollocks.


Reduce rental demand

Carrying on as if money grows on trees, the lip-pouters of the world think the solution is to gift every tenant their own home.

For the rest of us who don’t live in fairy land, the evidence from ABS proves that first home buyer activity over recent years is the highest ever in this nation’s history.

The same source of evidence also confirms record low participation rates by rental suppliers (property investors) between 2015 and 2020.

It is no coincidence that this period matches up with the series of regulatory restraints and the sharp reduction in rental vacancy rates in Image #1.

This next graphic is the most damning of them all when it comes to proving the direct connection between the volume of rental supply available for the Australian public and the level of property investor activity.

Rent prices respond to supply volumes

Plentiful rental supply provides tenants with ample choices during times of mobility.

Sufficient supply is reflective of a healthy free-market, and allows natural forces to influence price, as opposed to clogging the system with regulation.

We could use long-term official data for literally every location in Australia to (indisputably) prove this. For consistency, we’ll focus on Australia’s most decentralised state, Queensland, as a Case Study.


Brisbane QLD

The next graphic shows that the price to rent a house in Brisbane barely moved during the period 2013 to 2019 when there was ample rental supply.

The same big block of evidence also plots the correlation between the timing of regulatory restraints and Brisbane’s plummeting rental supply volumes from 2017 onwards.

In January 2020, Australia’s third largest city only had 8,300 properties advertised for rent – the same supply volume as 5-years earlier when Brisbane’s population was 230,000 fewer.

Over the 3-years to February 2023, Brisbane rents soared from $470 per week to $670 per week. A high appetite for mobility and very little rental supply creates extreme competition between tenants.

Australian real estate history is also littered with evidence that an abundance of rental supply can cause the price of rent to decline, no matter how big or small the city is.

For example, the advertised price to rent a standard house in Sydney declined from $750 per week in February 2017 to $710 per week in February 2020, before bottoming out at $610 per week in October 2020. It is currently $950 per week and guaranteed to soar higher.

Central Queensland

The historical rental patterns in the Central Queensland coastal towns of Hervey Bay and Bundaberg shows periods of rents declining, plateauing and rising.

The correlation between rental supply volumes and the trajectory of rent prices is clear.

North Queensland

No location anywhere in Australia is immune to the rental chaos and the evidence for the cause-and-affect of rent price movements is consistent.

This next graphic shows North Queensland’s rental supply volumes peaking at 376 properties advertised for rent in February 2017 and then plummeting to just 113 properties exactly 6-years later.

The last time rental supply volumes were this low in North Queensland was 2010 to 2012 and, surprise surprise, the price to rent accelerated sharply.

The evidence presented herein is compelling. Indisputable!

Anyone who fails to acknowledge that the only solution for addressing this self-inflicted rental crisis is to do everything humanly possible to encourage rental supply is an utter fool.


Heartstrings or real solutions?

The current focus of some gum-flappers and almost all policy-setters is on the symptom (the price to rent a home), as opposed to intelligently addressing the cause (a dire shortage of rental supply).

No one would have a problem with a 2-income household earning $200,000 per year having to pay an extra $100 per week rent. But if the tenant is someone with a hardship story everyone gets up in arms, blames the landlord and wants to pass new laws to punish every supplier of rental accommodation. Nutters.

We all have empathy for the (legitimately) vulnerable people who are struggling to meet household expenses, of which rent is one expense.

But it is just as hypocritical to punish the supplier of rental accommodation as it would be if anyone decided to punish the supplier of food, electricity, fuel or anything else that had increased in price.

It is the responsibility of the PIHPs to support the genuinely vulnerable without adversely affecting innocent others.

Each time any PIHP announces a new policy to ‘improve housing supply’, make sure to remember that the total volume of rental accommodation supplied by all governments has reduced from 400,000 to 300,000 over the last 30-years [source: ABS].

Anyone can play the sympathy card and line up a series of examples of people doing it tough.

If heartstrings are the focus, let’s line up the (literally) hundreds of thousands of rental property suppliers who are already running a rental property at an annual loss of between $20,000 and $50,000.

It cuts both ways.

Intelligent decision-making focuses on the root cause of a situation, not the heartstrings.

The root cause of this mess is grossly insufficient supply.

Capping the price to rent and restricting fundamental controls of asset ownership discourages people to fork out their hard-earned money, diminishes one’s preparedness to accept financial risks, and creates a level of rage which is now nearing boiling point.

It fails logical to address the rising price of any essential commodity by cutting off the only hand that feeds the mouth.

Does anyone think the price of umpteen grocery items would reduce by passing legislation that punished farmers and food manufacturers?

Or that the cost of materials to construct new homes would reduce by restricting production of those materials?

Hands up who thinks that the best way to address the nation’s massive skilled labour shortage would be to cap the income-earning capacity of everyone currently in the workforce?

Supply, you silly twit.

Produce more supply and the pressure on prices will eventually moderate.

The supplier (of rental accommodation or anything else) is only able to charge what the market needs to pay.

Everyday Aussie property investors supply 96 percent of Australia’s total rental pool.

The total net volume of permanent skilled migrants and international students is likely to increase demand for a combined 700,000 extra people over the next 12-months.

Australia needs a lot more investors, not less.

Until that happens, tenants will have no choice other than to compete hard for the limited rental supply offered by the shrinking number of landlords who have the resilience to absorb the hits from the baseball bats.

Rent prices are absolutely guaranteed to continue to soar and the number of Australians living in makeshift shelter may exceed 1 million people.


Related article: End of rent crisis to produce next boom


The symptoms have no chance of ever improving until the cause is addressed. Current actions are akin to ‘treating’ cancer with Panadol – it’s foolish to expect the pain to go away.

Only time will tell how much more harm is caused to all parties before the PIHPs start making intelligent decisions.

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